There has been a lot of discussion about motorbike hire and police etc, so thought I'd share my experiences. We hired a Yamaha automatic while there. No issues at all with the bike being brand new and it cost us 30 000 rph a day for a 7 day hire. We made sure we got two good helmets and checked the rego.
We saw lots of cops and got pulled over twice for a licence and rego check. On both occasions the police were very friendly and a few minutes of typically Asian pre-business banter occurred with the usual topics of how long we'd been in Bali, if we were married and had kids (my wife was riding pillion on both occasions) etc. After a friendly chat they asked for our licence and rego. I pulled out the rego and my motorcycle endorsed international drivers licence. They were very pleased and even teased me about my photo (which is pretty bad). No money changed hands and we were sent on our way.
They were very pleasant on both occasions and I'm sure doing the right thing and having the right documentation made all the difference.